With inflation running rampant, the Federal Reserve is responding by ratcheting up interest rates. The result is that mortgage rates have more than doubled over the last year. Higher rates have pushed many potential buyers who could have afforded to buy in 2021 out of the market in 2022.
For a $300,000 mortgage, a buyer who takes out a 6% loan today will have payments that are $600 higher than one with a loan at last year’s 3% rate. As a result, home sales numbers are crashing—down 19.9% as of August, compared to a year earlier.
Us income investors don’t have to worry, though. There’s a whole class of investments that will generate more and more income as the housing market crashes. Here’s my top pick…
For the time being, hopeful home buyers who can’t afford the higher premium payments on a mortgage must continue to rent. And with home purchases becoming increasingly unaffordable in many markets, there is an undersupply of rental homes. As a result, rental rates continue to rise: Apartment Income REIT Corp. (AIRC), for one, recently announced that for August, weighted average rents were up 14.0% compared to a year ago.
You can invest in residential rental housing through real estate investment trusts (REITs). Several REIT subsectors cover residential properties, including apartment REITs like AIRC, as well as single-family home REITs, manufactured home community REITs, and senior living REITs.
There’s now a newer ETF focused on residential REITs: the Home Appreciation U.S. REIT ETF (HAUS), which launched in February 2022.
In hindsight, that timing wasn’t great: HAUS has returned minus 11.8% since the February 28 launch. However, that return is in line with the broader market, with the SPDR S&P 500 ETF (SPY) down 11% over the same period.
Being so new, HAUS assets are very small. I expect the fund to grow over time, but with the market in turmoil, it may take time for the ETF to build up its asset size. I have added HAUS to my Monthly Dividend Multiplier portfolio, with a small start-out position.
HAUS’s top 10 holdings, below, would be a good place to start your research if you want to invest in individual residential rental-focused REITs:
As long as mortgage rates stay high and home prices do not drop significantly, many potential homebuyers will be priced out of the market. That economic reality makes residential rental properties attractive, with growing cash flows and dividends.
This dividend stock beat the market by 2,325% in the past 22 years!
It’s not REITs or blue chips like Disney. A small, little-talked about area of the dividend stock market is pumping out market-beating returns like no tomorrow. Over 22 years, they’ve handily beat the market… and I have the #1 stock of these to give you now.